Is Refinancing Worth the Cost?

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Some have said that only when your new interest will be at least two points lower, should you refinance your mortgage. Perhaps that was sound advice a number of years ago, but since refinance costs have been falling recently, it may be a good time to look into it. A refinanced mortgage is often worth its cost many times over, because of the advantages that can come, as well as a reduced interest rate.

Advantages

When you refinance, you could have the ability to reduce the interest rate and monthly payment amount, perhaps by a lot. You also could be given the option of pulling out some of the equity in your property by "cashing out" some funds to fix up your home, consolidate debt, or take your family on a vacation. With reduced interest rates, you might also be able to build your home equity faster by changing to a shorter-term mortgage loan.

The Cost

Of course, you will have to pay for your process of refinancing. You'll have the same sort of expenses and fees as with your current home loan. Included in your costs will probably be an appraisal, underwriting fees, lender's title insurance, settlement costs, and other expenses.

Doing the Math

You could need to pay discount points (prepaid interest) to attain a more favorable interest rate. If you pay (on average) 3% of the loan amount at the start, the savings for the life of the new mortgage loan can be significant. We recommend that you consult a tax professional before acting on hear-say that any points paid may be deducted on your taxes.

Speaking of taxes, once you lower your interest rate, of course you will also be reducing the paid interest amount that you can deduct on your federal income taxes. This is another expense that borrowers take into account. Call us at 701.222.0100 to help you do the math.

Most people find that the monthly savings outweigh the up-front cost of refinancing. We can help you explore what your options are, considering the effect a refinance may have on your taxes, how likely you might be to sell in the near future, and your cash on hand. Call us at 701.222.0100 to get started.

Curious about refinancing your home? Call us: 701.222.0100.

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